Accounting

Accounting

Thispaper seeks to analyze the Apple Inc Corporation. The analysisentails analysis of the financial performance while at the same timehighlighting the accounting principles and the various methods thatare learnt in the course. In this task, there will be a presentation,review and analysis of the published annual reports of Apple Inc andthe related footnotes for the financial year ended 2014 and 2013. Thepaper covers succintitly certain specific areas which includediscussion of methods employed in accounting for asssets, shareholderequity and explanation on the manner in which the inventory valuationmethod affects the results that are reported. Additionally, there isexplanatio of the approach of internal controls and compliance withSarbanes-Oxley. Further, the paper presets interpretatio of theresults of both horizontal and vertical analysis of the financialstatements. Various financial ratios will be prepared and analysedand among others they include debt ratios, efficiency ratio,liquidity ratios and equity ratios.

MethodsUsed to account for:

Assets

Whenaccounting for the assets, both the current and non-current assetsare taken into consideration. The various categories include takinginto consideration cash and cash equivalents, inventories, deferredtax assets, goodwill, long-term marketable securities and property,plant and equipment.

Liabilities

Whenaccounting for the liabilities, keen interest is taken in calculatingcurrent liabilities and this segment include accounts payable,accrued expenses, deferred revenue and commercial paper. There isalso consideration of deferred revenue, long-term debt and othernon-current liabilities.

ShareholderEquity

Inaccounting for the shareholder equity, consideration is given tocommon stock and additional paid-in-capital. Additionally, there isaspect of retained earnings and there is also accumulation of othercomprehensive income.

Interpretationof Results of Horizontal and Vertical analyses of FinancialStatements

Usually,one of the critical ways to analyze the financial statements iscarrying out the horizontal and vertical analysis of the statements.Through the analysis, the financial statement reader can compare theperformances of a company with others and evaluate the company over agiven period.

Whendoing the analysis, the horizontal and vertical analysis approachesare almost similar given that the dollar amounts are converted topercentages. Nonetheless, the differences emerge in the use of basefor computing the percentages.

HorizontalAnalysis

Horizontalanalyses often focus on the trends and changes that are in financialstatement items within a set period. Through the horizontal analysis,the financial user can see relative changes over defined time and beable to identify the positive or negative trends. Using the incomestatement of Apple Inc. the base year under consideration is 2013 andthen the dollar amount for the financial year 2014 are converted to apercentage of the base year (2013) dollar amount(Haslam et al., 2013).

2013Net Income/2014 Net Income, this implies that

(37037/39510)*100%=93.74%

FinancialRatios

ProfitRatio

Theprofit ratio is representative of the proportion of profits that gotfrom the sales of products and services prior to doing sale andtaking into account administrative expenses. Usually, this ratio isused to find out the ability of the company to come up with sellableproducts in a cost effective way.

(Profit/Sales)*100

FY2013

Netsales= $170, 910

NetProfit=$63,304

Profitratio= (63304/170910) *100=37.04%

FY2014

NetSales= $182,795

NetProfit=$70,537

Profitratio= (70537/ 182795) *100= 38.59%

Lookingat the two ratios, it emerges that the profit ratio of Appleincreased from the year 2013 to 2014 hence reflecting on theproductivity of the company.

DebtRatio

Debtratio is given by dividing total liabilities by total assets(Welch,2011).

FY2013

TotalLiabilities=83,451

TotalAssets=207,000

DebtRatio =0.403

FY2014

TotalLiabilities=120,292

TotalAssets=231,839

DebtRatio=0.519

In2013, the debt ratio of Apple Inc. is 0.43, which is higher ascompared to the debt ratio in 2014, which is at 0.519 (Delen, Kuzey &ampUyar, 2013). The increase in debt ratio witnessed in Apple in 2014 isan indicator that in 2013, the airline had more stable business withpotential of longevity and with lower overall debt. Additionally, therisk level of Apple Inc. appears to be greater in comparison to theothers and an investor who is risk avert will definitely avoid itwhile the reverse is true.

EquityRatio

Usually,the equity ratio is representative of the level of leverage used by agiven company(Delen,Kuzey &amp Uyar, 2013). The equity ratio measures the portion of thetotal assets, which are financed by stockholders and not thecreditors.

Equity=Total Equity/Total Assets

FY2013

TotalEquity=$123,459

TotalAssets=$207,000

Equity=(123,459/207,000)=0.5964

FY2014

TotalEquity=$111,547

TotalAssets=$ 231,839

Equity=(111,547/231839)=0.4811

Comparingthe two ratios, Apple Inc. had a relatively higher equity ratio in2013 than 2014 and this means that the performance was typicallyfavorable for the company in 2013. Additionally, this means thatthere was higher investment leaves by shareholders thus showing thatthe company was worth investing in as compared to its position in2014. With the higher ratio in 20143as compared to 2014, it isindicative that the company is more sustainable and less risky tolend future loans as compared to 2014. Usually, the equity financingis always much cheaper than the debt financing given that there isthe interest expenses related to debt financing.

LiquidityRatio

Generally,liquidity ratio is used to determine the ability of a company to meetits debt obligations (Delen, Kuzey &amp Uyar, 2013). The ability ofa company to meet the obligations is defined by the above ratios. Thecompany is in sound performance checking on the various financialratios and statements that are attached.

References

Delen,D., Kuzey, C., &amp Uyar, A. (2013). Measuring firm performanceusing financial ratios: A decision tree approach.&nbspExpertSystems with Applications,40(10),3970-3983.

Haslam,C., Tsitsianis, N., Andersson, T., &amp Yin, Y. P. (2013, December).Apple`s financial success: The precariousness of power exercised inglobal value chains. In&nbspForum&nbsp(Vol.37, No. 4, pp. 268-279). Elsevier.

Welch,I. (2011). Two Common Problems in Capital Structure Research: TheFinancial‐Debt‐To‐AssetRatio and Issuing Activity Versus Leverage Changes.InternationalReview of Finance,&nbsp11(1),1-17.

Appendix

Financialstatements and Annual Reports&lthttp://investor.apple.com/secfiling.cfm?filingid=1193125-14-383437&ampcik=&gt